Theory that index trackers undermine competition just won’t go away

Common ownership of US airline stock led to price rises
Patrick Smith / Getty Images

By

David Wighton

May 14, 2018 Updated: 12:03 a.m. GMT

Many things have gone wrong in finance in recent years. But the profusion of very low cost index funds would seem to be one financial innovation that has been an unalloyed boon for customers. Who can argue with giving investors market returns at minimal cost instead of paying active managers a fat fee for performance that is often worse?

Yet the growth of passive investing makes many observers nervous. After all, very rapid growth in new financial products has often been accompanied by unexpected problems. And it is a good...